Chipmaker National Semiconductor, so skilled in those black arts that mystify the digital masses, would be in a fine position even if it didn’t own 49% of Carver Mead’s Foveon. But it’s Foveon, our candidate to dominate digital photography in coming years, that could make National one of the stocks of the decade. The reason: Today’s digital cameras use a black-and-white imager, overlaying it with red, green and blue filters that throw away two-thirds of the data at each pixel and then guestimate it back in via elaborate algorithms and power-hungry processing. Foveon offers a better way. It has created the world’s first color silicon imager. Its chip takes in the real values for red, green and blue at every point. The results are photographs better than film, and processing times so fast that the same device will be able to double as a still and video camera. The Foveon chip will also enable the first true solid-state camera, eliminating every moving part in the camera proper and adding enormous price and durability advantages to its unbeatable picture quality. National will be lead fabricator for the chips. In March, National announced that in its third quarter, it lost $37.8 million on revenue of $369.5 million. But bookings were up 22%. National’s stock now trades around $33.

Altera

Altera is a key player in the market for “programmable logic devices.” PLDs are silicon “white boards” that can morph to perform increasingly diverse and high-speed applications, potentially replacing DSPs (digital signal processors) and microprocessors throughout the optical, wireless and networked storage worlds. Programmable devices allow one microprocessor to handle thousands of functions by running thousands of different software programs, creating huge economies of scale in production. Because PLDs thrive by “wasting” logic circuits, they are natural beneficiaries of Moore’s Law, which cuts the price of circuits on a chip by half every two years. With each such cycle, programmable logic becomes more irresistible, re-orientating the industry away from integrated producers like
Intel
and toward PLD producers like
Altera
. In its fiscal year ending December 2001, Altera lost $39.8 million on $839.4 million in revenue. Its stock, which has traded between $14 and $33.59 over the last year, now trades around $22.

With almost $7.5 billion in annual sales, this retailer is on track to be the next
Wal-Mart
. It specializes in selling reasonably priced, high-quality, national brand-name merchandise, including apparel, shoes and bedding. Kohl’s now has 382 stores in operation throughout the U.S., and the company is expanding quickly, opening 62 new stores in the past year alone. Total revenue is growing 20% annually. More important, same-store sales are up more than 10%, and earnings have been rising 30%. However, Kohl’s is not an undiscovered stock. Since Sept. 11, the stock has advanced from around $45 to a recent price of $70 per share, and it is selling for about 40 times expected earnings. In this case I believe you get what you pay for. With consumer spending remaining strong and an economy rising from recession, Kohl’s should continue to ring up generous returns for stockholders. Target Price: $80.

Honeywell

I initially recommended Honeywell in August 2000. Soon after,
General Electric
targeted the company for acquisition. We advised subscribers to take a 52% gain. A few months later the merger failed to win regulatory approval, and Honeywell’s stock price sank. It remains depressed due to its heavy exposure to the commercial aerospace industry, which has suffered considerably since the Sept. 11 terrorist attacks. But Honeywell is very diversified. It also makes control technologies (think thermostats), automotive products and specialty chemicals. I believe the stock is a strong buy once again. New management is focused on cutting costs. Honeywell should surge once air travel returns to pre-attack levels. And another acquisition attempt wouldn’t surprise us. In the meantime, investors can buy the stock for only 16 times expected earnings and pocket 2% a year in dividends. Target price: $50.

Hewlett-Packard

The family feud rages on, and if
Carly
Fiorina
Carly Fiorina
is successful in buying
Compaq Computer
, she must prove that it was all worth it. Her team promised that the new HP-Compaq would create savings of about $2.5 billion a year. But judging by HP’s sagging price, investors remain unconvinced. I believe that now is the time to get into HP. The company will eventually move away from low-margin PCs and focus on more profitable businesses such as printers and IT services. Buy HP now. This stock should climb to $25.

Few big companies have taken the beating Motorola has over the past few years. After losing $697 million on revenue of $29.5 billion in fiscal 2001, its stock is trading around $14, near its 52-week low. Investors have essentially lost interest in this one-time blue chip. That is precisely why investors should look at it now. Motorola is shedding its money-losing businesses and focusing on wireless, which now generates the bulk of its revenue. The company was first to develop a cellular phone for high-speed wireless networks–ahead of
Nokia
,
Ericsson
and others. Now, Motorola stands to win big because it is licensing its handset technology to other phone manufacturers–a strategy it will pursue for 3G cell phones. Licensing will likely become the most profitable segment of Motorola’s handset business. In addition, the company is working with
AOL
to provide instant messaging on its handsets–a good move because I believe IM will replace short messaging systems, which are popular in Europe. I believe patient investors will double their money in Motorola.

Qualcomm

If there is one stock every wireless investor should own, this is it. Over the last few years, Qualcomm converted itself from a maker of wireless handsets, chips and software into a company that is compensated for its intellectual capital–significantly expanding its markets, while decreasing capital expenditures. How? Many wireless providers use CDMA (Code Division Multiple Access) technology in their current systems and in the new 3G networks. CDMA is Qualcomm’s technology and it generates a royalty from every cell phone in service. As new 3G systems are installed worldwide over the next ten years, revenue from licensing fees and royalties will pour in. Qualcomm also owns sophisticated wireless location patents and is applying its CDMA technology to the electronic direct-to-theater delivery of digitized motion pictures. And that’s not all. Qualcomm stands to benefit from sales of its well-known Eudora e-mail client QChat, and from BREW, a platform for programming wireless applications and configuring handheld devices. The company, which lost $34 million on $2.69 billion in revenue, will recover. The stock, which has traded as high as $71, is now priced at $41.90.

IBM’s recent dip is a buying opportunity for investors interested in what many scientists and top government officials are hailing as the next technological revolution: nanotechnology. Since 1989, IBM has been the hands-down leader in this new science, obtaining over 700 nanotech patents. In the next decade IBM will begin to reap the rewards of these patents through licensing and joint ventures. IBM’s patent portfolio earned more than $1.5 billion in royalties in 2001.* Its Nano patents should eventually add billions to this. The company is also set to profit from its own nanotech products. Take “Millipede,” a nanotech approach to information storage that does away with the ubiquitous spinning disk. The Millipede will eventually store up to an incredible 1 terabit of data per square inch, in comparison to the 35 gigabits of today’s magnetic-disk drives. That’s a nearly 40-fold improvement in data density. Millipede is not a pie-in-the-sky dream. It should be out within two years. IBM will be a big factor in nanotechnology. Its stock at $87.91 is a good long-term holding.

Atlanta-based Mirant, formerly Southern Energy, is a global producer of electricity and natural gas. Unfortunately, it’s also a victim of the
Enron
panic. Mirant’s stock has plummeted from a high of $47 last year to a current $13.08. Like Enron, Mirant trades energy. But that is where the comparison ends. Trading energy futures is not inherently a bad business, but using excessive off-balance-sheet leverage to speculate and cooking the books is. I see Mirant’s depressed price as a buying opportunity. The company has over $5 billion in liquid assets, including over $1 billion in cash, and it projects earnings of $2.55 next year and growth rate of 20%. Far be it from me to recommend a common stock. I prefer Mirant’s preferreds. It has a $50 par 6.25% trust preferred, which converts to 1.8182 shares of stock and yields 7.8% while you wait for the stock to recover. Once the stock hits $22, you go dollar for dollar on the upside. If it make its earnings projection, that should be a breeze. If it doesn’t, sit back and collect your dividend.

Northrup Grumman

When stock prices plunged on Sept.11, there were a few stocks that bucked the trend. But look at the price chart for Northrop Grumman, which recently became the nation’s third-largest defense contractor. Sept. 11 changed the entire picture for defense spending, and Northrop offers investors an attractive way to participate in the rebuilding and modernization of our defenses. Buying its preferred is better than buying the common because of the conversion features. With the preferred, you stand to collect $21.75 in dividends between now and the conversion date, whereas common shareholders will get only $4.80 per share at the current rate. The preferred has a $4 premium above conversion value today, but for this you get the higher dividends and all the upside beyond $4 if the stock takes off. If the stock drops, the preferred holder is protected by receiving more shares down to an $88.50 price. In short, if the preferred stock goes up, you make $13 more than a common shareholder makes, and if the stock declines, your loss will be about $20 less than a common shareholder’s loss. The preferred would have to decline from its present $96 to $71 before you even show a loss.